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Federal law requires that Employee Benefit Plans with 100 or more participants be audited annually as part of the plan’s obligation to participants.
Independent audits help verify that plans have utilized correct participant and payroll information, and have properly applied the guidelines set forth in plan documents. Such audits can uncover that plans have insufficient funds to pay retirement, health and other promised benefits to participants, issues that could subject employers to substantial penalties. A quality audit can also help management improve operations by evaluating the strength of internal controls and financial reporting. Auditors can assist management in identifying control weaknesses and plan operational errors, and recommend steps to correct such issues.
The U.S. Department of Labor (DOL) has found significant deficiencies in Employee Benefit Plan audits, and has stepped-up enforcement activities. Therefore, failure to fully comply with Employee Benefit Plan audit requirements poses an increased risk for plan administrators and fiduciaries. The DOL has the right to reject plan filings and assess penalties of up to $1,100 a day, without limit, on plan administrators with deficient filings. This makes selection of a quality audit firm essential for plan administrators and executive management. The American Institute of Certified Public Accountants (AICPA) has published suggestions for hiring a quality Employee Benefit Plan (EBP) auditor, with step-by-step instructions for the proposal process and documenting the agreement.
According to the AICPA, evaluating the auditor’s qualifications is a critical step that includes considering licensing and independence rules, and reviewing the auditor’s experience and professional development. Auditors engaged for EBP audits are required by federal law to be licensed or certified as public accountants by a state regulatory authority. Plan auditors also are required to be independent for the purposes of auditing plan financial information and issuing an auditor’s report. Independent auditors must adhere to rules established by the DOL, the AICPA, and, in some cases, the SEC and the PCAOB.
All auditors are not alike. To ensure the integrity of your EBP, you must hire an independent qualified public accountant who has sufficient experience conducting Employee Benefit Plan / ERISA audits, and is able to:
• Determine if plan assets have been fairly valued.
• Review the unique aspects of plan obligations.
• Evaluate if employee contributions are being made in a timely fashion.
• Consider how plan provisions affect benefit payments.
• Review allocations to participant accounts, where applicable.
• Check issues which may affect the plan’s tax status.
• Identify transactions prohibited under the Employee Retirement Income Security Act (ERISA).
At White Nelson Diehl Evans, we have provided Employee Benefit Plan (ERISA) audit service for over 30 years. We conduct over 75 plan audits annually and are a member of the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC). Member firms are held to standards that demonstrate a commitment to audit quality and accuracy. We conduct significant employee training and development focused on EBP / ERISA audit guidelines and regularly send team members to the EBPAQC conference.
If you have any questions about hiring an EBP auditor, please contact your White Nelson Diehl Evans representative. Additionally, you may want to review the AICPA document “Hiring a Qualified Auditor” and the DOL document “Selecting an Auditor for Your Employee Benefit Plan” which are available online by following the links provided below.